Commercial loans are routinely assigned between lenders so that debtors who borrow from one lender often have to pay back another. As an important High Court ruling showed, however, judges will only accept the validity of such assignments on receipt of proof that all necessary formalities have been strictly observed.
The case concerned a consolidation loan of almost £1.6 million advanced by a bank to a property investor. The deadline set for repayment of the loan came and went but a substantial sum remained outstanding. By way of a deed, the bank subsequently purported to assign the loan, together with a portfolio of numerous other loans and securities, to a finance company.
After giving the property investor notice of the assignment, the company issued him with a statutory demand requiring him to repay that part of the outstanding debt which was not secured on real property. The demand was a precursor to bankruptcy proceedings but, following a hearing, a judge set it aside.
The judge noted that, on the copy of the deed of assignment that had been placed before him, both the name and the signature of the person who was said to have signed the document on the company’s behalf had been redacted. On that basis, he found that the property investor had established that there was a dispute on substantial grounds as to whether the deed had been validly executed.
The company asserted that its policy of redacting documents was necessary to prevent other debtors copying signatures with a view to forgery. The judge, however, observed that the redactions rendered it impossible for the property investor to check the credentials and authority of the alleged signatory.
Rejecting the company’s challenge to the judge’s ruling, the Court noted that it is legally possible for a deed to be effective in assigning a debt even if it is executed only by the assignor – in this case the bank. However, the wording and context of the deed indicated that what was intended was a bilateral agreement and that the document would only be valid if executed by both the bank and the company.
The Court found that the company had over-redacted the document and was thus the author of its own difficulties. Faced with the straightforward task of proving its title to an assigned debt, it chose to redact more of the deed of assignment than could possibly have been justified for reasons of security or confidentiality.